Disruptive Tech Theme of the Week: Phygital Convergence

by Jane Edmondson of VettaFi, 12/7/23

The real world and the digital world are converging every day and becoming increasingly interconnected, and where the two intersect is described by some as “phygital.” Technologies such as augmented reality (AR) and virtual reality (VR) are breaking down the barriers between the physical world and the digital world. We are becoming virtual avatars in a digital world called the metaverse.

Virtual Reality

We can see this in the gaming world, where VR has transformed the gaming landscape into an immersive adventure, where players are not merely spectators but active participants in virtual realms. And VR headsets such as Oculus Rift, HTC Vive, and PlayStation VR have redefined the gaming experience. Motion controllers, gestures, and spatial awareness have redefined player-game interactions, enhancing the user experience and driving player immersion to new levels. According to Insight Partners, the global VR market is expected to grow at a compound annual growth rate (CAGR) of 28.7% from 2022 to 2030 to $441.8 billion.

Augmented Reality

Augmented reality is designed to superimpose digital elements into the real world. It uses sensors to engage and understand the world around us using a combination of GPS, gyroscopes (a device that detects when a moving object is switching directions), and accelerometers (sensors that measure the acceleration of the device like a mobile phone). One of the most popular examples of AR is the Pokemon Go mobile app, which allows a player to locate and collect Pokemon characters that appear in the real world. Snapchat has filters that can superimpose reindeer antlers on your selfies. More practically, you can superimpose furniture into a room in your house or view a heads-up display on your automobile dash to monitor the speed limit or driving directions.

Metaverse

The metaverse is a blurry concept of a world in which the real world and digital fantasy worlds converge and become indistinguishable. It has been almost two years since Facebook rebranded to Meta and refocused its business efforts on the upcoming “metaverse.” However, nobody currently agrees on what the metaverse actually is.

Meta is building a VR social platform; Roblox facilitates user-generated gaming content. And Microsoft’s recent acquisition of Activision Blizzard may have implications for the metaverse — or maybe not.

Workplace Collaboration

Most of us spend time in the virtual world of workplace collaboration on remote platforms such as Zoom, Teams, and Slack. At work, we might engage in the virtual world of social media like LinkedIn. Cloud and artificial intelligence (AI) applications like ChatGPT are also revolutionizing the way we gather information, work, and connect. At the workplace, the goal of the phygital ecosystem is to facilitate seamless communication between the physical and virtual worlds, optimizing processes and collaboration.

Let’s Get Phygital with ETFs

Pardon the Olivia Newton-John song pun, but how do investors play the shift to phygital convergence?

Gaming ETFs

Several equity ETFs focused on the gaming segment include exposure to AR and VR gaming technology, but many also include exposure to online gambling and eSports.

Source: VettaFi ETFdb

Metaverse/Web3 ETFs

In the nebulous category of “metaverse,” there are also many ETF plays. To further complicate matters, there are Web3 ETFs that combine metaverse and crypto-related assets.

Source: VettaFi ETFdb, IVRS incepted 2/16/23.

Looking at the strong returns for the metaverse ETFs, it is puzzling why they have not captured more investor attention this year, other than the term “metaverse” being confusing to investors, and they were likely overshadowed this year by AI and crypto themes. But all these ETFs are worth a closer look as the physical and digital worlds collide, making “phygital convergence” an attractive disruptive technology theme.

For more news, information, and strategy, visit the Disruptive Technology Channel.

Originally published on ETFTrends.com on December 5, 2023.

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